If it’s already built, they don't need subsidies to build it

A response to BRAC’s latest “public policy commentary”

The Baton Rouge Area Chamber has issued a new “public policy commentary,” which includes some heated rhetoric about Together Baton Rouge, Together Louisiana and the industrial tax exemption program. It argues that our position on the exemptions is harming the economic prospects of our area.

It is the second such document BRAC has issued in as many months.

We’d like, in this response, to get away from the heated rhetoric and ad hominem statements, to focus on three things:

A word about our relationship with BRAC

What our position on the industrial tax exemption program actually is, because it’s not discernible in either of the BRAC commentaries,

Addressing BRAC’s primary substantive claim in its commentary – that Governor Edwards’ reforms to the ITEP program, or our advocacy, or both, are slowing down construction projects and putting Baton Rouge-area jobs at risk.

I) Our relationship with BRAC

We have a long-standing respect for BRAC’s work and mission in our community. We’ve worked together on many issues in the past, including some where we’ve agreed and others where we have not. In the past, we have maintained a positive relationship in both scenarios and continued to look for other opportunities to collaborate.

We’ve reached out to try to meet with BRAC’s leadership on several occasions over the last few months. We did not expect that we magically would agree on corporate tax exemption policy. The goal, rather, was just to hear each other out, to make sure we’re fully understanding each other’s perspectives and maybe, just maybe, to find some areas of common ground.

Those requests have not been accepted.

This kind of inside baseball is probably of concern to very few people, outside the membership and leadership of the respective organizations. But we want to say, publicly – we value BRAC. We’re concerned about the state of our relationship. We want to do what we can to improve it and hope BRAC will consider doing the same.

II) Our position on ITEP

Our position on ITEP is simply this – that local entities which stand to lose revenue on ITEP exemptions should establish standards and criteria to guide their evaluation of ITEP requests before they consider submissions from individual companies.

We support evaluation criteria that establish a minimum standard for job creation, set a cap on the amount of exemptions awarded per job and tie a parish’s subsidies to the hiring of parish residents.

We have, in other words, a middle-ground position on exemptions.

We think exemptions can be appropriate when they operate as true incentives, bringing a public benefit that is worth the public cost. But we think exemptions are inappropriate if they are used to subsidize projects that would have happened anyway with or without receiving a subsidy, because in that case public entities and taxpayers face substantial public costs without receiving commensurate public benefit.

Standards and criteria for approval of exemptions are essential because they are the only way to distinguish one scenario from the other – the incentives from the gifts.

III) Assessing BRAC’s claim that 47 projects and 9,000 jobs are at risk due to ITEP reform

In its latest commentary, BRAC writes:

In the 17 months since the Governor issued his executive order, there have been 47 ITEP advanced notifications filed for the nine parish Capital Region (the first step in the ITEP application process), but just one of these 47 projects has actually been approved and moved forward. The confusion surrounding local taxing authorities’ ability to approve ITEP has caused the remainder to sit stagnant as the approval process in each parish has been developed. …

The 47 ITEP advanced notifications filed in our region would create more than 9,000 construction jobs, nearly three times the amount Dr. Scott projects we will lose in the next year. These 9,000 jobs come with a corresponding $395 million of construction payroll. In East Baton Rouge alone, projects with ITEP advanced notices that have yet to be approved are projected to create more than 4,400 construction jobs and $270 million in construction payroll.

These projects, it is true, have not had their industrial tax exemption subsidies approved.

But what is also true is that, for the majority of these projects, the actual project – which BRAC describes as “sitting stagnant” and “not moving forward” – is already under construction or complete, even without the public subsidy having been approved.

Indeed, 38 of the 47 projects BRAC mentions -- those highlighted green in the linked document above -- have construction start dates that already have passed.

BRAC gives no information about the actual status of each project. It only mentions that their ITEPs have not yet been approved. But we know, for instance, that the largest projects in East Baton Rouge Parish not only have begun, but in many cases have been completed.

The largest project of the list of 47 is at ExxonMobil’s Refinery. You can read more about that project by viewing its advance notice on LED’s website here. The project costs $209 million and is requesting $26.5 million in exemptions from EBR taxing bodies over 8 years.

The project creates no new permanent jobs. It creates 1,495 construction jobs. Those 1,495 construction jobs are included in BRAC’s count of 9,000 “jobs at risk”.

Are those construction jobs truly at risk? It’s hard to see how, because the project has completed construction. ExxonMobil even took a half-page ad out in The Advocate to celebrate the project’s completion back in July:

The jobs BRAC claims are “at risk” here already have been created and their first- and second-order economic impacts already are in the kitty. Nevertheless, ExxonMobil soon will be seeking a public subsidy of $26.5 million to “incentivize” this project, even though the project was completed several months ago.

Most of the 47 projects BRAC mentions are in a similar situation and will already be underway or complete when they go up for approval for subsidies, seeking a retroactive “incentive.”

A public subsidy self-evidently is not necessary to incentivize a project that already has taken place. Similarly, the delay or refusal to approve that subsidy self-evidently is not a hindrance to the creation of jobs if those jobs already have been created.

In summary, the scenario BRAC paints in its commentary of jobs and investments on the brink of being lost unless public subsidies are approved in short order is a non-factual one.

How much public revenue is at stake in this discussion? $178 million that would be foregone by Capital Area school districts and other taxing bodies over an eight-year period, on the 47 ITEP exemption requests mentioned by BRAC.

For East Baton Rouge Parish’s 14 ITEP requests, parish taxing bodies would lose $57.7 million over the next 8 years, $23 million of which would be foregone public school revenue.

$58 million in taxpayer subsidies for projects that are already underway or complete before the subsidies even are approved. This hopefully makes it clear why we think standards and criteria to guide the ITEP approval process are so important.